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An Antitrust Reminder For Membership Organizations

A class of plaintiffs succeeded earlier this month in persuading a New Jersey federal court that trade and professional associations may violate the antitrust laws by tying benefits to association membership.[1] The antitrust class action challenges a medical association’s requirement that physicians purchase an association membership to maintain their board certification. The court’s decision denying the association’s motion to dismiss concluded that the association’s use of its dominant position in the board-certification market potentially foreclosed competition for medical association membership.

While the dominance of this particular association may be unique, the case is a reminder to associations and other membership organizations that the antitrust laws may impact decisions to permit access to benefits and services.

The Plaintiffs Challenge Their Association’s Requirement of Membership to Obtain Certification Services

To practice medicine and obtain a medical license, all physicians—both osteopathic doctors (DOs) and medical doctors (MDs)—must obtain board certification. The plaintiffs, a group of board-certified DOs, allege that they effectively have a single option to obtain board certification, which is through the defendant, the American Osteopathic Association (AOA). In light of the AOA’s allegedly dominant control over board certification, the plaintiffs challenge the AOA’s requirement that DOs purchase and maintain AOA membership to obtain board certification from the AOA.

The plaintiffs allege that the AOA exploited its control over board certification, forcing DOs to purchase an AOA membership even though membership is not connected to their certification or otherwise related to their everyday medical practice. The plaintiffs claim that the AOA’s requirement unlawfully ties board certification to AOA membership in violation of federal and state antitrust laws. They allege that this tying arrangement reduced the number of DOs willing to join other medical associations because, together with the AOA dues, joining another association was cost-prohibitive and unnecessary. This, in turn, reduced competition in the professional association market. Without competition, the plaintiffs assert that the AOA has been able to raise the costs of annual membership dues to nearly double the rates charged by its competitors for similar membership benefits.

The Federal Court Concluded that Tying Certification to Membership May Violate the Antitrust Laws Because There Was No Other Meaningful Choice

The US antitrust laws will scrutinize arrangements that require the purchase of one product (known as the “tying” product) on the condition that the buyer also purchase a second product from the seller (known as the “tied” product). Many tying arrangements are permissible—an illegal tying arrangement arises when a seller possesses market power over the tying product and exploits that power to force a buyer to purchase a separate, tied product that the buyer would have purchased elsewhere. In other words, the antitrust laws will prohibit the seller of a product with little competition from tying sales of that product to the sales of a second product and, as a result, reducing competition in that second market.

Here, the AOA moved to dismiss the complaint, but the court concluded that the plaintiffs alleged sufficient facts to show a possibly illegal tying arrangement: The AOA exploited its control over board certification (the tying product) to force DOs to purchase an AOA membership (the tied product). The court acknowledged that tying membership to benefits is not always prohibited. But the court was persuaded by, among other things, the assertion that 32,000 AOA board-certified DOs had no other practical option for board certification and risked losing their certifications unless they purchased AOA memberships, which cost significantly more than other medical association memberships.

The court reasoned that the plaintiffs’ allegations would demonstrate that the tying arrangement had no purpose except to stifle competition. The court also found that the plaintiffs’ allegations demonstrated that the tying arrangement substantially reduced competition by foreclosing competitor medical associations from competing in the market. Accordingly, the court held that the plaintiffs sufficiently asserted an illegal tying arrangement.

The Decision Presents Several Points for Membership Organizations to Consider:

​Association rules that limit benefits to members do not always raise antitrust issues, but could if buyers need the tying product and otherwise have no meaningful option but to buy both products from the association.

Associations should watch for situations like this case, where the association may effectively force members to not purchase membership or services from competitors.

The court expressed concern in this instance that competition with other membership associations is reduced, allowing the AOA to significantly increase membership dues and revenues. This concern was supported in particular by the effective inability of DOs to choose to join other associations in addition to joining the AOA.

By contrast, where the cost of joining an association is not prohibitively high, conditioning access to certain benefits or services on association membership could be a reasonable restriction. For instance, a federal appellate court found that a provider of multiple listing services (MLS) of real estate data that tied access to membership in a local realtor association did not amount to an illegal tying arrangement where there was no evidence that members were foreclosed from joining other realtor associations.[2] Likewise, a Kentucky federal court found that a rule prohibiting real estate professionals from purchasing MLS services unless he or she was also a member of any realtor association was not unlawful where there was no evidence that the cost of joining the association precluded members from joining another association or accessing another association’s services.[3] Lastly, in a case involving a similar antitrust challenge to an MLS access rule, a New Jersey state court previously found that conditioning access to MLS services on realtor board membership was reasonable where, among other things, there were no exclusionary conditions attached to board membership and the cost of joining the association was not so high.[4]

For most member-run or -owned organizations, this case will not apply because of a lack of market dominance or foreclosure of competition. But the case is a reminder to these organizations to remain sensitive as they design their business rules.

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Compare jurisdictions:Litigation: Enforcement of Foreign Judgments

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